The motive is to “promote the bilateral trade between China and Russia,
facilitate the cross-border trade settlement of [the yuan], and meet the
needs of economic entities to reduce the conversion cost,” according to
This latest move — a continuation in a series of efforts by both
countries to move away from U.S. dollar usage in international trade —
further threatens the dollar’s reserve currency status.
The dollar has this status because it is currently the currency of international trade.
For example, when Malaysia and Germany exchange goods, the transaction
is often denominated in dollars. In particular, oil — something that
all modern economies need — is denominated in U.S. dollars, so the
currency is almost as indispensable as oil itself.
The dollar reserve currency status allows the U.S.
to run up high deficits and have its debt be denominated in the U.S.
dollar, which in turn enables it to print unlimited dollars and inflate
its way out of debt. America, understandably, wants to protect these
In fact, some allege that the U.S. wants to protect this status so badly
that it invaded Iraq because the country began selling oil in euros
instead of dollars. Now, the U.S. is allegedly threatening Iran because
of the country’s desire to use euros or Russian rubles in oil
Meanwhile, China and Russia are gradually revolting against the U.S.
dollar. This latest move to shift bilateral trade away from it is
significant in itself because China-Russian trade — previously
denominated in dollars — is currently around $40 billion per year. For
Russia, trade with China is larger than trade with the U.S.
Moreover, as this policy extends to Russian exports of oil and natural
gas to China, it threatens the global “petro-currency” status of the
According to the International Energy Agency, China is already the
largest consumer of energy, although the U.S. is still the largest
consumer of oil. However, China, now the largest automobile market in
the world, is expected to rapidly increase oil consumption.
Russia is already the second biggest oil exporter and the biggest natural gas exporter in the world.
In other words, the growing importance of Russia and China in the global
energy picture — and their phasing out of dollar usage for trading
energy commodities — would marginalize the status of the dollar.
Russian ambitions against the dollar for energy exports go back to 2006.
That year, former President Vladimir Putin made plans to set up a
ruble-denominated oil and natural gas stock exchange in Russia.
“The ruble must become a more widespread means of international
transactions. To this end, we need to open a stock exchange in Russia to
trade in oil, gas, and other goods to be paid for with rubles…Our goods
are traded on global markets. Why are they not traded in Russia,” said
For China, it is promoting the use of yuan as a trade settlement
currency in Asia. Recently, it allowed its currency to trade against the
Malaysian ringgit. Just like the deal with Russia, the purpose of that
agreement was to “promote bilateral trade between China and Malaysia and
facilitate using the yuan to settle cross-border trade.”
Trade is the major reason for the demand of foreign currencies in the
first place. So as countries like China and Russia phase out the usage
of U.S. dollars for international trade — including but not limited to
oil trade — its status as the world’s reserve currency will continue to